HIDDEN COSTS Export financing can pay for itself in countries where the export climate is favorable. In some countries such as China, where the economics currently work against U.S. exporters. U.S. exporters are at a disadvantage.

MANUFACTURING KNOW-HOW TURNS BUCKEYE STATE INTO GLOBAL PLAYER

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Ohio is now competitive with any region on the globe in the cost of doing business and the quality of its goods.

Seattle and Denver like software startups but are skeptical of manufacturing.

Cleveland is open to manufacturing.

Ohio’s manufacturing sector once dominated the state’s economy and employed more than half its workforce. That was in the 1940s, when the sector was supplying the Allied forces during World War II.

Since then, the state’s manufacturing footprint has shrunk—and it took a big hit during the Great Recession—but the sector remains a vital part of the economy. One in eight Ohio workers is in manufacturing, making the state third in the nation, after the much-bigger California and Texas. Ohio manufacturers contributed $108 billion to the economy in 2015, 17.8 percent of the state’s total.

All of which points to Ohio’s long and storied manufacturing legacy, a fact that has contributed to a resurgence in manufacturing in the past few years. Ohio manufacturers, whether old or new, appreciate the deep pool of talent they are able to draw from and an environment that is friendly and supportive of manufacturing.

Manufacturing employment has yet to return to pre-recession levels in Ohio—or the nation, for that matter—but jobs have seen a partial recovery since 2010. More than that, manufacturing output has come roaring back since the recession, now standing at 20 percent above pre-2009 levels, thanks primarily to investments in technology made by the Ohio manufacturing sector.

“Ohio has a strong industrial heritage,” says Eric Burkland, president of the Ohio Manufacturers’ Association (OMA), a trade group that speaks for the sector at the state and national levels. “Its access to resources such as iron, coal and water made it a prime location to produce industrial products, so early on the state developed strengths in basic materials and manufacturing processes.”

During the recession, Ohio experienced quite a few company failures as cash dried up from the hard-pressed banks. “But the companies that made it continued to invest in new products and technologies,” notes Burkland, “so as demand came back these companies were ready and have grown in their output and their economic impact. Ohio is now competitive with any region on the globe from the standpoint of the cost of doing business and the quality of goods produced.” Most Ohio manufacturers are small businesses: around 50 percent employ fewer than 10 people, and less than one half of one percent employ more than 1,000.

Technology does play a greater role in manufacturing, but Ohio manufacturers report—and Burkland agrees—that the Buckeye State’s manufacturing talent pool is a prime factor that attracts and keeps manufacturers there. “Our people have the technical skills,” boasts the OMA president.

For Tom Lix, founder and CEO of Cleveland Whiskey, what local blue collar workers bring to the job is not merely skills but attitude. “A lot of our equipment was invented and built from the ground up,” he explains. “Our employees have the ability to figure out how something works, how to maintain and fix it, and how to build the next generation. Their backgrounds as mechanics and in industrial and consumer product manufacturing bring the right attitudes of jumping in to learn new things and not being afraid to get their hands dirty. That’s a big part of it.”

The Pipe Line Development Co. (PLIDCO) in Westlake, Ohio, which is near Cleveland, is a third generation family-run business. Current CEO Kim Smith’s grandfather was working for Standard Oil when he come up with some ideas to make the industry safer. Prize money from a contest run by Lincoln Electric provided the seed money to start the company, which makes high-pressure, high-temperature repair clamps and several other products for the oil pipeline industry.

“We have great access to employees from local trade schools,” says Smith. “We consider ourselves very fortunate because we have been here for many years as a family business and are able to hire three or four generations of other people’s families. We love that family feel to our business and being here and staying here has allowed us that luxury.”

Lix considers Cleveland Whiskey to be a technology company disguised as a spirits company. “We don’t think of ourselves as a craft or micro distillery,” he says. “We think of ourselves as an innovation and technology company.”

He developed a method of producing bourbon whiskey by aging spirits in barrels for only 24 hours. The company shipped its first bottles in 2013 and still occupies its original space in a state-supported tech incubator.

The company’s innovation was to invent pressure equipment that can produce bourbon comparable to whiskey that has been aged in barrels for years. Federal regulations require bourbon to be produced in the U.S. from distilled spirits of less than 160 proof, made from at least 51 percent corn, and aged in American charred oak barrels—but they don’t say for how long. Cleveland Whiskey’s equipment and processes allow the whiskey to be produced quickly, and the company rapidly found a market niche as brown spirits have gained popularity in recent years, and the population of whiskey drinkers in such places as Japan and China has grown, leaving a worldwide whiskey shortage.

Part of Cleveland Whiskey’s innovation also involves the use of unusual woods—such as apple, cherry, sugar maple and hickory—in the production process, yielding a variety of flavors without needing to add sugar or other sweeteners. The company has also recently introduced a line of bourbon-infused smoker woods for outdoor cooking.

Lix’s passions include both whiskey and technology, especially disruptive technologies, as well as finding new market openings. “People are entering the middle class in China for the first time and they’re looking for affordable and conspicuous luxuries,” he says. “Imported bourbon fits that description and our product can fill that need quickly, without having to wait up to 12 years for whiskey to age with traditional processes.”

The whiskey company chief expects exporting to play an important role in the growth of his business; he already has a foot in the door in Germany, France, Belgium, Switzerland, Denmark and Japan. Total sales during the first six months of this year were 70 percent higher than the same period last year.

Cleveland Whiskey came to Cleveland by accident; Lix relocated to Ohio from Massachusetts for family reasons. He had recently sold a software business and was planning on moving to the Pacific Northwest when he took a detour.

“After I’d been here for a couple of years I came to realize how great it is here for entrepreneurs and what great manufacturing resources are here,” Lix says. “The waterfront is being transformed, attracting people to live and work downtown. There’s the right mix of blue collar and white collar talent. And there’s an entire ecosystem that allows you to jumpstart manufacturing projects. Places like Seattle and Denver like software startups but are skeptical of manufacturing. Cleveland is open to manufacturing.”

Smith continues his grandfather’s legacy, manufacturing niche products that make operating and maintaining oil pipelines safer and exporting them all over the world. These include the high-pressure, high-temperature repair clamp that has been around for 60 years, flange gaskets that keep refineries running while repairs are being make, as well as a lot of custom work.

PLIDCO has tapped into some state and local government resources available to help the business. The company currently employs three college interns—working on auditing the company’s export compliance and identifying new opportunities in export markets—paid in part with state dollars. Ohio also provides support for employee training and PLIDCO has made use of those resources to train workers on computer numerical control (CNC) machines.

“We also hire veterans as much as possible,” says Smith, “and there are dollars available for that as well.”

Cleveland Whiskey has made use of state government resources that helped it with manufacturing and exporting issues. Much of the company’s early financing came from innovation funds run by the city; state, county and city financing programs provide for deferred interest payments on loans.

The company is located at MAGNET: The Manufacturing Advocacy and Growth Network, a state-supported nonprofit and part of a national network known as the Manufacturing Extension Partnership, staffed by engineers and growth advisors who work with manufacturers throughout northeast Ohio on new product and process development.

“We are collocated with them,” says Lix, “and have worked with them to take ideas to build prototypes and develop early-stage manufacturing processes. We’ve been here longer than anyone else and continue to find this is a great space for us. Having all these engineers close by has helped us tweak our technology, and allowing them to give their visitors a quick tour of a whiskey facility is a win-win for both of us.”

For OMA, making manufacturers even more competitive will require federal corporate tax reform, to lower business costs, and even more effort at the state level on workforce development and energy modernization. “We need to tap into the energy revolution,” says Burkland. “We need to upgrade legacy systems with new technology.”

Lix believes Cleveland Whiskey “couldn’t be in a better place” as a manufacturing and technology-innovation company.

“We have the people, resources, buildings and access to capital,” he says. “We’ve been able to continue to grow in this advanced technology incubator with other companies doing amazing things manufacturing here in Ohio.”